1. Field of the Invention
The present invention relates to a method and/or system for determining a net reserve amount for a leased vehicle and/or a reserve position concerning a portfolio of such leased vehicles.
2. Related Art
The leasing of vehicles is becoming more common among consumers and, therefore, those entities owning leased vehicle portfolios are interested in predicting profits/losses on the portfolio. Often, the owners of leased vehicle portfolios are automotive manufacturers and/or financial institutions (such as the Chase Manhattan Bank).
It is useful to review known car leasing procedures prior to discussing the particularities of the invention. A (potential) lessor will become the owner of a vehicle for lease by paying a so-called vehicle cost (which includes any negotiated reduction) to, for example, a manufacturer of the vehicle. The retail price of the vehicle is often equal to the vehicle cost; however, the retail price may vary from the vehicle cost as a function of the negotiated reductions and/or options included with the vehicle.
The lessor of the vehicle and a lessee (e.g., a consumer) will enter into a lease contract to lease the vehicle for a period of time, the lease term. Often the lease term begins in a so-called book month (month that the lease was entered into) and ending on a so-called scheduled maturity date. The lease contract will specify an amount of money that the lessee pays to lease the vehicle, usually on a monthly basis.
The contract typically will set a so-called residual value on the vehicle which represents a price that the lessee may pay at the scheduled maturity date to purchase the vehicle from the lessor should the lessee wish to do so. Otherwise, the lessee returns the vehicle to the lessor. The residual value is usually obtained by taking the a projected price of the vehicle at maturity from a publication, such as the Auto Lease Guide""s (ALG), and adding an enhancement. The ALG projected price is widely accepted as a good guess as to the auction price that will be paid to purchase the vehicle at maturity. Adding the enhancement to the ALG""s projected price assures that the lessee will pay less each month to lease the vehicle (assuming that the enhancement was positive) and, therefore, provides an incentive for the lessee to lease the vehicle from that particular owner. It is noted that the enhancement may also be zero, or the enhancement may be negative if the lessor wishes the lessee to pay more per month to lease the vehicle (for example, where the lessor believes that the ALG projected price of the vehicle at maturity is too optimistic).
It is noted that the lessor may wish to xe2x80x9cset asidexe2x80x9d a reserve amount for each vehicle to cover potential losses which may occur when and if the lessee chooses to return the vehicle at termination of the lease as opposed to purchasing the vehicle.
For example, it is assumed that a lessor has consulted the ALG and determined that a vehicle which he wishes to lease to a lessee will theoretically auction for $10,000 at a scheduled maturity date (e.g., 24 months in the future). Further, the lessor selects an enhancement amount of $1,000, resulting in a residual value of $11,000. The lease will set forth a monthly payment to be made by the lessee to the lessor over the 24-month period to cover the difference between the vehicle cost (i.e., the cost for the lessor to obtain ownership of the vehicle) and the residual value. The lessor sets aside a reserve amount to cover, for example, a loss should the lessee decide to return the vehicle at termination of the lease. The loss would occur because the lessor would obtain $10,000 for the vehicle (the ALG predicted value of the vehicle), thereby losing $1,000 (the enhancement amount).
Assuming that the probability that the lessee will return the vehicle at termination of the lease is 50%, the lessor may wish to establish a reserve amount to be $500 (50% of $1,000). It is noted that the lessor will theoretically not experience a gain or loss if the lessee chooses to purchase the vehicle at the residual value when the lease terminates.
Often, lessor""s wish to obtain actual auction prices for used vehicles. The so-called Black Book provides MSRP values and actual auction prices for used vehicles on a periodic basis, typically each month.
A leased vehicle will be worth less at the scheduled maturity date than at the book month due to, for example, depreciation, miles and damage, and/or other market conditions. The difference between the actual value of the vehicle at the scheduled maturity date and the residual value is often referred to as the market value loss. It is desirable for the reserve amount to substantially match the market value loss of the leased vehicle at the scheduled maturity date. This will ensure a proper balance between encouraging a lessee to lease the vehicle and obtaining profits for the lease and/or eventual sale of the leased vehicle.
A net reserve amount for a leased vehicle is equal to the reserve amount less the market value loss. An aggregate of the net reserve for each leased vehicle in a portfolio yields a reserve position for the portfolio, which is an indication of the lease residual risk associated with carrying all of the leased vehicles in the portfolio.
It is desirable to minimize the reserve position for the portfolio. Accordingly, owners of leased vehicle portfolios are interested in predicting the net reserve for each vehicle and the reserve position for a portfolio on a periodic basis so that corrective action may be taken if the magnitude of the reserve position moves substantially away from zero.
A method of predicting a net reserve for a vehicle leased by a lessee from a lessor in accordance with a lease in accordance with one aspect of the invention comprises the acts of: predicting a market value loss of the vehicle at a scheduled maturity date of the lease, the predicted market value loss being a function of: (i) a probability that the vehicle will be returned to the lessor after the lease; (ii) at least one predicted price at which the vehicle may sell after the lease; and (iii) a residual value of the vehicle, the residual value being an aggregate of at least a projected price of the vehicle at the scheduled maturity date made prior to the lease and an enhancement amount; and obtaining the net reserve of the vehicle as a function of the predicted market value loss.
Other objects, features, and/or advantages of the present invention will become apparent to those skilled in the art from the description herein taken in conjunction with the accompanying drawing.